By George Glover
The likes of Intel and Micron Technology have powered the market higher in recent weeks but escalating geopolitical worries could scuttle the chip-stocks rally.
In a research note published on Monday, Gavekal Research CEO Louis-Vincent Gave named the looming summit between U.S. President Donald Trump and China's premier Xi Jinping as one reason for investors to feel cautious about the semiconductor sector.
The two leaders are set to meet in China on Thursday and Friday, Beijing confirmed.
Trump needs to replenish the U.S. stockpile of rare-earth materials, while Xi's objectives include securing the right to buy high-end chip-making machinery, the analyst said. Dutch company ASML, which makes lithography tools used in the production of advanced chips, has long been banned from selling its machines to China.
"Needless to say, a 'rare earth for ASML lithography machines' deal would open the door to much lower chip prices down the road," Gave wrote, noting that chip makers including Taiwan Semiconductor Manufacturing Co., SK Hynix, and Samsung Electronics would lose pricing power if China were to gain market share.
Investors may also not be fully pricing in the threat the Iran war poses to chip makers, according to Gave. He thinks the conflict could jeopardize Middle Eastern data-center financing and make it tougher for central banks to cut interest rates.
The "obvious hurdle is the same as in every bull market: the larger the bull market becomes, the more capital it needs to keep growing," Gave wrote.
Chip stocks have surged in recent weeks because a strong start to the first-quarter earnings season has signaled robust artificial-intelligence demand. The PHLX Semiconductor Index locked in its largest 25-day rally since the 2000 dot-com bubble last week.
Some analysts have questioned how long the stellar run can last.
Gave did share some reasons to feel bullish in Monday's note. The rally ought to have legs as long as chip companies continue to raise their earnings-per-share estimates at a time when investors are hopeful the Iran war could end, he said.
Write to George Glover at george.glover@dowjones.com
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May 11, 2026 08:38 ET (12:38 GMT)
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